Rate reduction means that we're all winners

Even if you didn’t back Dunaden in the Melbourne Cup, the Reserve Bank’s decision to reduce official interest rates by 0.25% means most mortgage holders had a long awaited win!

This is the first cut to interest rates in twelve months and thankfully all the major banks appear willing to pass on the full reduction to consumers.

So in cold hard cash what does this interest rate cut really mean to the average consumer?

I estimate that on an average mortgage of $300,000 paid over 30 years, the 0.25% cut will save you about $51 per month.  Not quite enough to fill your car up with petrol but 51 times better than nothing.

This of course is being hailed as great news for retailers leading up to the Christmas rush, however I’d really encourage all my clients to try to remain thrifty.

Put it this way:  if you choose to keep your mortgage repayments the same, that extra $51 per month could reduce the term of your loan by 3.5 years!  In other words, that saving of $51 per month will go towards paying off the principal sum of the loan and in the long run make a huge saving on the interest paid and the life of the loan.

Better still, if you have a redraw facility on your mortgage, those extra repayments will accumulate so that you can access them if ever you really need them.  It’s a really effective way of saving some money whilst offsetting the interest owing on your loan.

For more information go to intouchfinance.com.au – at intouch we aim to help you stay intouch with your financial dreams.